Shell China becomes first oil major to sign terminal use agreement with PipeChina

The subsidiaries of state-owned infrastructure company China Oil & Gas Piping Network Corp, or PipeChina, and Shell's China trading arm signed a memorandum of cooperation and two terminal use agreements on Feb. 22, PipeChina LNG Terminal Management Co said on its social media account later on the same day.

The deals make Shell the first international oil and gas company to sign a terminal user agreement with PipeChina, marking an important step in the opening up of PipeChina's LNG terminals for third party access, PipeChina LTMC, a subsidiary of PipeChina, said.

Shell's agreement with PipeChina also underscores the gradual liberalization of China's natural gas sector, which has been in progress for years and the development of market-based mechanisms in the gas industry.

The creation of PipeChina through a government mandate in 2019 was a major step in separating some of China's state-run LNG terminals and pipeline infrastructure from the direct control of national oil companies.

Shell's deal could pave the way for more global LNG traders to directly bid for access to China's LNG terminal infrastructure and supply their downstream customers. Other oil majors like BP have been supplying the Chinese market but through an equity stake in the Guangdong Dapeng LNG terminal.

The terminal user agreements were signed for two LNG receiving terminals -- Yuedong LNG and Beihai LNG -- for 2022 with Shell Energy (China) Co Ltd, a fully owned subsidiary of Shell, according to PipeChina LTMC. Under the MoC, the two parties will collaborate in the use of PipeChina's LNG receiving terminal slots in the long term, the Chinese counterparty said.

PipeChina and Shell will leverage their respective strengths, with PipeChina offering its domestic terminal operations expertise and Shell bringing in its international oil and gas resource portfolio, PipeChina LTMC noted.

PipeChina, prior to the deal with Shell China, had awarded medium to long-term LNG receiving terminal slots for a period of five to 20 years to 14 applicants in late 2021, with contracts effective April 1, 2022. All these terminal slots were offered to Chinese energy companies.

PipeChina currently operates seven LNG receiving terminals: Liaoning Dalian, Tianjin Nanjiang, Jieyang Yuedong, Shenzhen Diefu, Guangxi Beihai, Hainan Yangpu and Guangxi Fangchenggang.

These terminals are located along China's coastal cities from the northeast to the south, with a total LNG receiving capacity of 27.6 million mt/year, which accounts for nearly one-third of China's total LNG receiving capacity, according to PipeChina LTMC.

PipeChina is also constructing three new LNG terminals -- Shandong Longkou, Fujian Zhangzhou and Shenzhen Diefubei. Once these terminals are put into operation, PipeChina's LNG receiving capacity will increase and benefit more third-party users, it said.